Tuesday, July 3, 2012

The Individual Mandate and A Bush 2007 Proposal

A mandate is only as effective as the penalty backing it up. No one, as far as I know, is ready to make failure to be insured a criminal act punishable by jail time. Instead, if a person fails to follow the mandate, he merely pays a penalty. So the mandate is really just a financial incentive to have insurance.
To continue with this logic, consider two proposals:
1. A person is required to have health insurance. If a person is in violation, he pays a $1000 fine. The revenue from the fines is rebated lump-sum to all taxpayers.
2. A person is not required to have health insurance, but those with health insurance receive a $1000 tax credit. The cost of the tax credit is financed with a lump-sum tax on all tax payers.
Notice that there is no economic difference between these two scenarios.

He later noted similar logic from Len Burman, Jason Furman, and Roberton Williams in their review of a 2007 proposal from President Bush. While this review critiques the distributional consequences of the Bush proposal, which are different from the distributional consequences under the current law that was just found to be Constitutional in the opinion of Chief Justice Roberts and the four “liberal” justices, it is interesting that not only is ObamaCare = RomneyCare but as these authors note:

the administration’s proposal is very much like the Massachusetts mandate—in effect everyone would get a $7,500 or $15,000 deduction and the “punishment” for not getting health insurance would be to lose the deduction.